"We're alleging that the basketball arena deal is really "bailout ball," said attorney Cleveland Stockmeyer.
Stockmeyer filed the lawsuit on Friday, alleging the city of Seattle's $200 million loan to Chris Hansen does not comply with I-91, a measure to protect taxpayers on land deals.
Stockmeyer's suit says the city has no true guarantee to see a return on the investment.
"This is a bailout in advance," he said. "It's an ongoing subsidy and it's a lack of fair value."
Stockmeyer hopes to depose Hansen during discovery.
The City Attorney's office is not commenting about pending litigation, but did say they are settling a separate lawsuit with the Longshore union. That suit centered around the ongoing Environmental Impact Study.
Hansen's representatives did not respond for comment.
The suit comes at a vulnerable time for Hansen and the Sonics. Councilmembers Bruce Harrell and Tim Burgess confirmed Tuesday that city staff has been briefed on Hansen's deal to buy the Sacramento Kings.
That city's mayor, Kevin Johnson, was granted the opportunity to cobble together investors to buy the ailing team and keep them in California's capital. It's unclear how that hearing may affect Hansen's deal. So far no specifics have been announced.